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WHAT’S WRONG WITH THIS PICTURE? I’m holding a single 8½ X 11” page that includes a check and a “stub” detailing the reason for the check, the privacy policy and the file information. The check is made payable to a friend.The “stub” explains, “The attached check represents your portion of the monies that Western Union agreed to make available to the class in the Paterson v. Western Union Financial Services, Inc. class action settlement. Your rights under…” The check further states, PAY EXACTLY ONE AND 00/100 DOLLAR to Mrs.____________.Before I go off on my planned tirade,
I’m curious. Do you think this person’s share was exactly a dollar or did
they round up or round down? Do you think the damages indemnified by this
dollar are exaggerated or understated? Should my friend appeal for more
money or return the excess payment as she deems appropriate? I believe in personal / corporate responsibility. I believe in consequences for behavior. I also believe there is no free lunch. Corporations do not pay taxes or damages from lawsuits. Their stockholders, employees who lose their jobs (when hard times hit) and the consumers of their products and service pay the price for such costs. I think injured people should be indemnified by the person / entity that has caused their loss. I don’t think people who aren’t injured should recover for another’s loss. Even more, I don’t believe that people / entities should have to pay for damages THEY DID NOT CAUSE. I believe bad things happen to good people and life ain’t fair. I believe that on occasion behavior of an individual or an entity is so egregious (criminal or gross negligence) that a punishment should occur. I don’t have a problem with “punitive damages” if these awards fairly mirror the behavior and are dedicated to the “public good.” Compensatory damages should make whole the injured party. What is the “public good”? I could suggest retiring the national debt, Health Care for the uninsured, curing cancer or AIDS, etc. Maybe the parties to the lawsuit could direct any award to their favorite cause. Max DePree a recognized authority on Leadership indicates that the first role of a leader is “to define reality.” Let’s preface the questions about the system with an example that might help readers get a feel for the “reality” of the current system. Let’s base this example on the basis of my friend’s “good fortune” (or at least is the way our current system has chosen to make her whole). What if some “well intended” group of trial lawyers would pursue some giant industry or industry giant and seek an aggrieved class to pursue and seek damages similar to that received by my friend. When I try to quantify $1.00 (one dollar) damages, I assume this might include a service employee who fails to smile or respond instantaneously to our request or adds hassle to our lives, etc. If I can get consensus on this as reasonable injury for my friend’s reasonable compensation, we can continue dialogue. If I’m wrong, I’d welcome your view of a $1.00 loss. (I just thought about it – is this award taxable income to my friend?) You can respond to me by e-mail at squareoneconsulting@cox.net. For the purpose of this example I assume that every person in America (or the legal guardian of every dependent person) accesses or is “touched” by the Health Care, Energy, or Insurance / Financial Services Industries. I’m further assuming that everyone in America – all 280,000,000 (two hundred eighty million) of us has been frustrated or aggravated or inconvenienced in our dealings with each of these industries. I’m assuming that the damages caused by this frustration, aggravation, or inconvenience is worth at least $1.00 per capita. I’m further assuming that we could get a judge and jury to agree with us. (I HOPE THIS DOESN’T STIMULATE MORE CLASS ACTION LAWSUITS.) What if we were to “win” a class action lawsuit and each one of us were the lucky recipient of my friend’s fortune? Wouldn’t the cost be $280,000,000.00? Let’s analyze the process. As a practical matter the cost is more than $1.00 each or $280,000,000.00 in aggregate. Let’s assume that the group of trial lawyers who handled the case charge a 33% contingency fee the award would need to be at least $418,000,000. Unfortunately these aren’t the only costs. Let’s further assume that the administrative (copies, letters, newspaper / TV announcements to solicit the class, etc.) and other costs (expert witnesses, court costs, appeal bonds, research, etc) accompanying the filing and pursuit of the lawsuit equal 10% of the damages. That’s another $28,000,000.00. In addition, there is the cost to defend the claim. This is not a contingency-based model. This is typically an “hourly rate” system. Let’s assume that the costs to defend the claim are half of the cost to pursue it. This is another charge that the defendant will have to pay. Costs included in the damages (direct costs of settlement): Total Damages (The Award) $446,000,000.00 Less - Administrative and Other Costs $28,000,000.00 Less – Contingency Fees (Plaintiff Attorneys) $138,000,000.00 Equals – Damages to “Victims” $280,000,000.00 Award to each “victim” $1.00 Costs included in defense of the claim (indirect costs) Cost of defense attorneys (50% of plaintiff) $69,000,000.00 Administrative and Other Costs $28,000,000.00 TOTAL COSTS TO SOCIETY $545,000,000.00 As stated earlier (see paragraph # 5) “corporations do not pay taxes or damages from lawsuits, in the short term their stockholders (less in dividends) and employees (less money for compensation and benefits or jobs [layoffs]) do. In the long-term, customers pay these costs in higher prices. Here’s the sad reality of this silly
little “game” we call class action lawsuits. If my assumptions are right
(AND THEY AREN’T), in this case each
of us “lucky winners” of the class action lottery receive $1.00. We may
have to pay taxes on this amount. In the short term if we are a stockholder
in or employee of the corporation being sued we’ll pay a share of the
damages in terms of reduced dividends, loss of our job, or reduction in our
compensation. In the long term we’ll pay our proportionate share of the
award in higher costs for the goods or services purchased. DISCLAIMER / WARNING / NOTICE: Let me be perfectly clear, I do not believe that we should eliminate lawyers and lawsuits. I do not trust the average businessperson, corporation, or other entity to act in my best interest because of an altruistic attitude that they claim to possess. I do believe we need balance in our system. I DO BELIEVE HOWEVER THAT OUR CURRENT SYSTEM IS BROKEN (OUT OF BALANCE) AND WE SHOULD PURSUE A BETTER WAY TO PUNISH THE BAD PLAYERS AND INDEMNIFY THOSE WITH TRUE DAMAGES. I don’t have the answers – here are the questions I’d like answered: · Are class action lawsuits a benefit to or problem for society? · Are punitive damages AS CURRENTLY AWARDED a value to society? · Should we balance the needs of “injured” parties with the public good? · Should we pay damages if the “loss” is valued at a dollar? · Should claims be paid when damages are less than the cost to issue the check? · Should damages in class action lawsuit reward attorneys more then plaintiffs? · Should a “loser pays” rule be established? · Should compensation to attorneys be tied to the average award to the plaintiff (example – should an attorney be limited to 1,000 [or a higher / lower amount] times the compensation received by the average plaintiff)? · Why should the injured party who has been made whole [indemnified] by compensatory damages receive a bonus from punitive damages? · Is it good public policy to “incent” people to sue by creating a “Powerball” type lottery mentality? · Should trial lawyers who receive their compensation through the contingency system receive a “bonus” because of the awarding of punitive damages? Would it be better public policy to dedicate all punitive damages to the public good? · Should we pursue a class action lawsuit against attorneys who file these suits? · Should as a bare minimum, the legal system (plaintiff / defense) be required to provide full disclosure of legal and related costs on the front (anticipated) and back ends (actual) of legal actions? · What do you think? What’s wrong with this picture? Alexander Fraser Tytler (1748 – 1813) said, “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the Public Treasury…” In 2003, this writer (with apologies to Mr. Tytler) believes, “Our capitalist / free enterprise system cannot exist as a permanent economic model. It can only exist until consumers discover that they can sue themselves money from corporate treasuries and their insurance companies…” © Square One Consulting (September 2001) |